2025/16 | LEM Working Paper Series | ||||||||||||||||
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A Complex System Perspective on the Economics of Climate Change, Boundless Risk, and Rapid Decarbonization |
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Francesco Lamperti, Giovanni Dosi and Andrea Roventini |
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Keywords | |||||||||||||||||
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climate change, complex system, agent-based modeling, decarbonization, climate risk
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JEL Classifications | |||||||||||||||||
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Q54, Q55, O44, C63
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Abstract | |||||||||||||||||
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Climate change stands as one of the most formidable challenges in the
twenty-first century. Despite this, our understanding of the unfolding
and interconnection of climate-related physical and transitional
risks, and their implications for socioeconomic dynamics along various
transition pathways, remains insufficient. This deficit of
understanding echoes throughout the formulation of effective climate
change policies. In this context, our chapter emphasizes the need for
a comprehensive and interdisciplinary approach to address climate
change. Such an approach must (1) credibly encompass the immense
risks that global warming exerts on the Earth system; (2) account for
the intricate processes of technical change and technology diffusion
that are at the core of the low-carbon transition; (3) allow the
percolation of risks and opportunities across sectors and regions; (4)
account for behavioral change in consumption dynamics; and (5) allow
testing of a wide range of climate policies and their
robustness. Complex-systems science offers distinct vantage points for
framing the intricate climate challenge. While outlining current
research gaps, we argue that the current generation of climate-economy
models rooted in complex systems provides a promising starting point
to fill these gaps. We delve into a series of findings that evaluate
the material impact of climate risks on economic and financial
stability and explore alternative trajectories for policy
implementation. Our analysis underscores the ability of
complex-systems models to account for the extreme costs of climate
change and the emergence of critical tipping points, wherein
unmitigated emissions lead to free-falling declines in long-term
growth and catalyze financial and economic instability. Given such
findings, we argue that a complex-systems perspective on climate
change advocates for stricter and earlier policy interventions than do
traditional climate economy models. These policies can transform the
seemingly antithetical objectives of decarbonization and economic
growth in standard models into complementary ones. We assert that a
combination of regulation and green industrial policies can nurture
eco-friendly investments and foster technological innovation, thus
steering the economy onto a zero-carbon sustainable growth
pathway. These results challenge conventional precepts in the realm of
cost-benefit climate economics and offer the building blocks for a
more robust and realistic framing of the climate challenge.
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